It's got to hurt to be Xinhua Financial Media
It could have been better. Xinhua came to market profitable, having earned the U.S. equivalent of $3.3 million last year on $59 million in revenue. Traditional media stocks in general often get a bad rap for deteriorating sector dynamics, yet financial specialists like Dow Jones
Xinhua should also have been blessed by its role in covering China's blazing stock market. Thanks to its specialization in business news, as well as programming geared toward wealth management and affluent lifestyles, the quickly expanding economy makes Xinhua the distributor of seriously coveted content.
So what went wrong? Let's just say that the Xinhua IPO came two weeks too late. Back then, this new offering would have probably catapulted into the high teens. Since last week's Chinese meltdown, investors have been exercising caution in Asian equities.
That makes Xinhua a bit more open to bearish scrutiny. For starters, at its $13 offering price, Xinhua would have commanded a rich, nearly $900 million market cap. An investor can find plenty of higher-margin opportunities in China trading at less than Xinhua's proposed market multiple of more than 250 times trailing earnings.
Xinhua generated operating margins of 12% and net margins of 5.7% last year. That falls well short of the fat margins generated by Web-based stars like NetEase
That's a good thing, of course. Dialing down the hype is healthy for the Chinese market in the long term. Realistic valuations and investor expectations are natural evolutionary steps for the market.
So here's a conversation-starter to get you going over the weekend: How do you think Xinhua will cover its own disappointing IPO?
Longtime Fool contributor Rick Munarriz is a fan of China's growth story, but he does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.